G.R. No. 226272 , September 16, 2020
PANACAN LUMBER CO., ANTONIO B. GO, MA. TERESA C. GO AND DOROTEA B. GO, PETITIONERS, VS. SOLIDBANK CORP., (NOW METROPOLITAN BANK & TRUST COMPANY), RESPONDENT.

FACTS

Petitioner Panacan Lumber Co. (PLC) obtained a Foreign Letter of Credit (FLC) for US$168,000.00 and a separate loan of P700,000.00 from respondent Solidbank. The P700,000.00 loan was secured by a real estate mortgage (REM) executed by individual petitioners Antonio and Teresa Go. PLC made a partial payment of US$60,000.00 on the FLC, leaving a balance. Solidbank later extrajudicially foreclosed the REM, amending its petition to include not only the P700,000.00 loan but also PLC’s dollar obligation under the FLC, converted to pesos, resulting in a total claimed obligation of over P9 million. The property was auctioned, with Solidbank as the highest bidder.
Petitioners filed a complaint, securing a writ of preliminary injunction enjoining Solidbank from consolidating ownership. Solidbank nevertheless consolidated the title in its name. The Regional Trial Court (RTC) ruled largely in favor of petitioners, declaring the foreclosure void for improperly including the FLC obligation and awarding damages. The Court of Appeals (CA) reversed the RTC, affirming petitioners’ liabilities for the remaining FLC balance and the P700,000.00 loan, but nullifying the consolidated title for violating the injunction and granting petitioners a one-year redemption period.

ISSUE

The core issue is whether Solidbank validly included the unpaid balance of the US Dollar-denominated FLC in the foreclosure of the REM securing the Peso-denominated loan.

RULING

The Supreme Court denied the petition and affirmed the CA Decision with modification on interest rates. The Court held that the foreclosure was invalid insofar as it included the FLC obligation. The REM contract expressly secured only the P700,000.00 loan evidenced by a specific promissory note and “such other loans” that may thereafter be granted. The FLC, a separate dollar-denominated credit facility obtained before the REM was constituted, does not fall under the clause “may hereafter be granted.” Therefore, it was not secured by the mortgage. Only the P700,000.00 loan could be validly foreclosed.
Consequently, the foreclosure sale, based on a bloated obligation, was void. The CA correctly nullified the consolidated title and granted a redemption period. However, the Supreme Court modified the legal interest rates in line with Nacar v. Gallery Frames. For the P700,000.00 loan, interest at 6% per annum runs only until the date of the void foreclosure sale (October 4, 1999). Thereafter, the total obligation (principal plus accrued interest) shall earn 12% per annum interest from judicial demand (November 22, 1999) until June 30, 2013, and 6% per annum from July 1, 2013 until full satisfaction. For the FLC dollar balance, the stipulated interest applies until full payment. The redemption price for the property is the valid foreclosed obligation (P700,000.00 loan plus interest as recalculated).